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CMA Final · Direct Tax Laws and International Taxation · GAAR

Once an arrangement is declared an impermissible avoidance arrangement, which of the following is a permitted consequence under GAAR?

The Assessing Officer may disregard or combine steps, or recharacterise the transaction or the residence of parties, to remove the tax benefit. GAAR does not itself provide automatic multiple penalties, prosecution or PAN cancellation as its consequences.

  1. ADisregarding or combining any step, or recharacterising the nature of the transaction or place of residenceCorrect
  2. BImposing a penalty equal to three times the tax benefit automatically
  3. CProsecuting the assessee for wilful evasion without further proof
  4. DCancelling the PAN of all parties to the arrangement

Explanation

The consequences include disregarding, combining or recharacterising any step or part of the arrangement, treating parties as connected or not, reallocating income or deductions, disregarding the treaty, or looking through the arrangement. They do not include automatic penalties, prosecution or PAN cancellation.

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